Lighting Strategy - Philips

Lighting Strategy
Frans van Houten
a.i. CEO Philips Lighting
Key takeaways
• We continue to grow at mid single digit and
are taking decisive actions to address
margin issues
• The lighting industry is undergoing an
unprecedented transformation
• Philips is the global leader in lighting
• Philips sustains its global leadership in LED
products and solutions
• On our path to value we will outgrow the
market and expect 8-10% EBITA
2
3
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1

Key takeaways
• We continue to grow at mid single digit and
are taking decisive actions to address
margin issues
• The lighting industry is undergoing an
unprecedented transformation
• Philips is the global leader in lighting
• Philips sustains its global leadership in LED
products and solutions
• On our path to value we will outgrow the
market and expect 8-10% EBITA
We have undertaken actions to address issues with
our performance
Results impacted by
• Slower market growth
• Operational issues in Consumer Luminaires and Brazil
• Lower sales in Lumileds driven by Display business
• Margin pressure driven by higher material prices and unfavorable mix
• Investments for growth, in R&D and go-to-market
Decisive actions…
• Increase prices
• Improve mix
• Reduce costs
• Fix operational issues
…while maintaining investments
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26
2

Key takeaways
• We continue to grow at mid single digit and
are taking decisive actions to address
margin issues
• The lighting industry is undergoing an
unprecedented transformation
• Philips is the global leader in lighting
• Philips sustains its global leadership in LED
products and solutions
• On our path to value we will outgrow the
market and expect 8-10% EBITA
The lighting industry is transforming and offers
significant growth opportunities
Global General Illumination 1 market forecasted to
grow to around EUR 80 Bln by 2015…
EUR billion
75 - 80
2011
Conventional lighting
LED lighting
CAGR of
5 – 7%
1 Excluding Automotive Lighting and LED components market
Source: Philips Lighting global market study 2010, updated for 2011
2015
…driven by LED, legislation and increasing light
points in growth geographies
• Lighting market will grow faster than GDP,
driven by:
– LED: LED penetration forecasted to
grow to ~45% by 2015
– Energy efficiency: Many governments
are phasing out inefficient lighting
technologies
– Growth in light points: Increased
electrification leading to strong growth in
light points in growth geographies
• Conventional lighting continues to be a large
part of the market
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28
3

Lighting industry value is gradually migrating from
light sources to applications and solutions
Strong growth forecasted in the applications 1
market…
2011
CAGR
7-8%
2013
2015
1 Includes Luminaires and Lighting controls, but excludes home controls market
2 Digital Lighting includes LED lighting and Lighting controls
Source: Philips Lighting global market study 2010, updated for 2011
…driven by transition to LED and increasing
demand for integrated solutions
• Currently, applications constitute ~70% of
the global lighting market
• Penetration of LED based lighting fixtures is
forecasted to be over 50% by 2015
• Penetration of LEDs in road lighting in China
increased from 30% in
2010
• Digital lighting 2 driving the penetration of
intelligent solutions (e.g. telemonitoring,
daylight harvesting etc.)
Philips has a unique position in a changing lighting
competitive landscape
Digital Lighting value chain The changing industry landscape
LED
components
Electronics
/ LED chip
players
Modules/
bulbs
LED bulbs /
modules
players
Luminaires
LED
luminaires
players
Controls/
solutions
Lighting/
building
controls
players
• Traditional value chain had:
– 3 to 4 global and few local lamps
players
– 6 to 8 regional and thousands of local
luminaires players
• Lower barriers to entry in LEDs will initially
mean more players across the value chain –
not all positioned to win
• Building systems and lighting controls players
collaborating on turnkey projects for energy
savings
• Philips has an unique advantage, leveraging
strong position across the value chain
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Key takeaways
• We continue to grow at mid single digit and
are taking decisive actions to address
margin issues
• The lighting industry is undergoing an
unprecedented transformation
• Philips is the global leader in lighting
• Philips sustains its global leadership in LED
products and solutions
• On our path to value we will outgrow the
market and expect 8-10% EBITA
Philips is the global leader in lighting with a strong
portfolio…
We are the largest lighting company… …with a strong and balanced portfolio
Indexed sales of Philips lighting and
top 5 competitors 1
Philips 424
Competitor 1 261
Competitor 2 100
Competitor 3 66
Competitor 4 63
Competitor 5 48
2
General Lighting Others
1 Sales for competitors based on the latest fiscal year information
2 Includes backlighting, display / flash, projector lighting and other
non-general illumination categories
6%
11%
Total sales
EUR 7.6 Bln
28%
8%
Lamps
Packaged LEDs
Professional Luminaires
and Controls
Last 12 months
June ‘11
6%
41%
Consumer Luminaires
Drivers and modules
Automotive
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32
5

…with strong coverage across geographies…
We have global coverage… …with strong presence in growth geographies
29%
EMEA
North America
Total sales
EUR 7.6 Bln
5%
Last 12 months
June ‘11
27%
…and segments
39%
Asia Pacific
Latin America
Philips Lighting
Customer Segments 1
61%
Total sales
EUR 7.6 Bln
Last 12 months
June ‘11
Growth Geographies
Mature geographies
Homes Offices Outdoor Industry Retail Hospitality Entertainment Healthcare Automotive
23%
1 Indicative split
17% 15% 10% 15% 5% 3% 4% 8%
More than 75% of our revenue is from
professional customer segments
39%
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We are the leading global lighting brand with high
customer loyalty
Strong brand preference vs. competition… …helping us to maintain market leadership
Philips Lighting brand equity index 1 , 2010
Philips Lighting
Competitor 1
Average
Competitor 2
Competitor 3
1 Philips brand equity study 2010
2 Customer panels and Industry associations
3 General Illumination only
85
84
100
100
131
Lamps
Consumer
Luminaires
Professional
Luminaires
Systems &
Controls
Automotive
Packaged
LEDs3 Overall
Lighting
YoY change in market share 2 , 1H 2011
Europe
North
America
Latin
America
Asia/
Pacific
Share gain Neutral Share loss
And we are the leading LED lighting company
Strong positions in LED lighting Robust growth across our LED portfolio
• LED licensing program with over 140
licensees is clear testimony of our LED
innovation leadership
• One of the leading lighting packaged LEDs
players worldwide
• LED lamps market share exceeds our share
in conventional lamps
• Largest LED luminaires company
Last 12 months sales, EUR million
466
Q2 ’09
CAGR
+52%
797
Q2 ’10
1,081
Q2 ’11
Total
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36
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Key takeaways
• We continue to grow at mid single digit and
are taking decisive actions to address
margin issues
• The lighting industry is undergoing an
unprecedented transformation
• Philips is the global leader in lighting
• Philips sustains its global leadership in LED
products and solutions
• On our path to value we will outgrow the
market and expect 8-10% EBITA
We have a strategy to maintain leadership in
conventional lighting and win in LEDs / applications
Global General Illumination 1 market
EUR billion
90–100
1
2011 2015
2020
LED luminaires and controls
Conventional luminaires
1 Excluding Automotive Lighting and LED components market
Source: Philips Lighting global market study 2010, updated for 2011
2
3
LED lamps and modules
Conventional lamps and drivers
1
Win “golden tail” in conventional
lamp and drivers.
Create flexibility to anticipate slower
or faster phase out
2
Leverage growth opportunity in LED
lamps and modules
3
Invest in LED luminaires and
controls to secure future leadership
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Sustaining our leadership position in LED lighting
and solutions…
Building blocks Our strategy
Sustaining
value creation
in Lamps
Driving value
creation in
applications
and solutions
Winning in
mature and
growth
geographies
• Capitalize on portfolio, distribution and brand in conventional
to sustain leadership in LED
• Extract maximum value from conventional lamps while
effectively managing our industrial footprint
• Capitalize on portfolio, distribution and brand in conventional
to sustain leadership in LED
• Leverage controls portfolio to develop integrated, segment
specific lighting solutions
• Customer engagement through key account management for
end-users, specifiers and OEM customers
• Drive leadership in growth geographies through penetration
into tier 3 /4 cities
..whilst building on necessary strengths for
sustainable value creation
Strengths
Philips brand
Cost-efficiency and
responsiveness
Go-to-market
strength
Global footprint
1 Consumer brand equity study 2010
Innovation leader
• World’s 42nd most valuable brand in 2010 compared to 65th in 2004
• Consistently among top-ranked players, top 10% in India, China and Brazil,
top 20% globally in the Corporate brand equity index1 • Integrated value chain and end-to-end processes for fastest time-to-market
• Low-cost and highly efficient manufacturing and supply base
• Strong Key Account Management and specifier relations
• Strong coverage in 4 metropolitan cities and 32 main cities in China
• Over 1 million selling points through wholesale in India
• Leader in LED lighting innovation (e.g. L-prize), with an established
technology roadmap, ahead of competition
• Leading IP position acknowledged across the industry
• Serving customers in over 180 countries
• Growth geographies contributing around 40% of our total revenue
• Global presence driving scale
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Initiatives under Accelerate! are creating a
platform for profitable growth
Accelerate! for Lighting
Customer
centricity
End-to-end
excellence
Operating
model /
Cost reduction
Growth and
performance
culture
Resource to Win
• We strengthen and empower market teams to drive entrepreneurship and local
relevance so that customers can be served better
• End-to-end process optimization to improve time-to-market and supply chain
performance
• Simplify Lighting organization to drive speed and accountability
• Overhead cost reduction yielding significant cost savings (~EUR 200M)
• Accelerated footprint rationalization
• Drive accountability and entrepreneurship
• Improved performance management at business-market combination level
• Granular plans with step-up in investments for growth in R&D (LED, solutions and
controls) and go-to-market (key account management, solution selling)
• IP creation and leverage
Initiatives under Accelerate! are creating a
platform for profitable growth
Accelerate! for Lighting
Customer
centricity
End-to-end
excellence
Operating
model /
Cost reduction
Growth and
performance
culture
• We strengthen and empower market teams to drive entrepreneurship and local
relevance so that customers can be served better
• End-to-end process optimization to improve time-to-market and supply chain
performance
• Simplify Lighting organization to drive speed and accountability
• Overhead cost reduction yielding significant cost savings (~EUR 200M)
• Accelerated footprint rationalization
• Drive accountability and entrepreneurship
• Improved performance management at business-market combination level
Resource to Win • Granular plans with step-up in investments for growth in R&D (LED, solutions and
controls) and go-to-market (key account management, solution selling)
• IP creation and leverage
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We invest to drive performance across the value
chain, leveraging our vertical model in LED…
Investments
Vertical Model
benefits
Product /
Technology
Operations
Go-to-
Market
Packaged LED Bulbs / modules Luminaires / Controls / Solutions
• Performance/cost
leadership in LED for
illumination
• Capacity/scale
• Operational excellence
• Portfolio expansion
• Performance/cost leadership
• Standardization
• Low cost operations
• Reduced time-to-market
• LEDification of luminaires portfolio
• Strengthen portfolio in controls
• Lighting system development
• Low cost operations
• Reduced time-to-market
• Increase distribution reach • Customer/ specifier relations • Customer/ specifier relations
• Solution selling
• Expand reach in growth
geographies
Drive scale in packaged LEDs through Philips’ LED growth
Fast product development through common platforms and end-to-end value chain coordination
Best performance and lowest cost at system level
Secure LED supply at lowest cost
..focusing our R&D on key growth areas and growth
geographies
Focusing our R&D investments on key growth
areas…
Conventional
1
Digital
R&D investment by technology type
2008
2010
1 Includes investments in LEDs and Controls
2011
2015
100%
…and increasing our R&D footprint in growth
geographies
EMEA
NA
APR
2008
R&D FTE distribution by region
2010
2011
2015
100%
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Key takeaways
• We continue to grow at mid single digit and
are taking decisive actions to address
margin issues
• The lighting industry is undergoing an
unprecedented transformation
• Philips is the global leader in lighting
• Philips sustains its global leadership in LED
products and solutions
• On our path to value we will outgrow the
market and expect 8-10% EBITA
Improve Lighting performance to achieve mid term
target of 8-10% EBITA by 2013
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10
Comp.
Sales
Growth (%)
5
0-
4
Philips Lighting Mid-Term Performance box
Performance
Box 2013
8 10 12
EBITA %
Mid-Term financial objectives (2013)
Sales growth CAGR 1 6 – 8%
Lighting reported 2 EBITA 8 – 10%
1 Assuming market growth of 5 -7%
2 Including restructuring and acquisition related charges
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46
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Key takeaways
• We continue to grow at mid single digit and
are taking decisive actions to address
margin issues
• The lighting industry is undergoing an
unprecedented transformation
• Philips is the global leader in lighting
• Philips sustains its global leadership in LED
products and solutions
• On our path to value we will outgrow the
market and expect 8-10% EBITA
47
13